Sugar Falling as Brazil Blaze Seen No Bar to Glut: Commodities

Sugar Falling as Brazil Blaze Seen No Bar to Glut: Commodities

Sugar is retreating from a one-year high as traders judge that record stockpiles in China and accelerating exports from India will more than offset lost supplies from a warehouse fire in Brazil. Raw-sugar futures fell 6.1 percent in New York since the Oct. 18 blaze damaged Brazil’s biggest port. Prices will drop another 8.9 percent to average 17.25 cents a pound in the second quarter, Deutsche Bank AG says. While Brazil’s center south, the largest producing region, may ship 500,000 metric tons less at the peak of its production cycle in the third quarter, that will still leave a global export glut of 1.5 million tons, according to Kingsman SA, a Lausanne, Switzerland-based research company.The fire that damaged Copersucar SA’s warehouses drove futures out of the bear market that started in September 2012 as supply beat demand for a second year. China, the second-biggest user, will have reserves of 5.48 million tons by September and Indian exports will gain at least 10-fold, the U.S. Department of Agriculture and ED&F Man Commodities India Pvt. say. The drop in prices is cutting costs for Krispy Kreme Doughnuts Inc. (KKD) and Grupo Bimbo SAB, the biggest bread maker.

“The world won’t need all those Brazilian exports because we expect primarily the Chinese import demand to slow a little bit because of the stocks they have,” said Jonathan Kingsman, the founder of Kingsman, a unit of McGraw Hill Financial Inc.’s Platts. After the Brazilian fire, “people went through all the numbers and looked at it again and said even if it is restricted, it won’t have much of an effect.”

Prices Retreat

Futures jumped as much as 6.1 percent to 20.16 cents on ICE Futures U.S. in New York on Oct. 18 and trading volumes rose to the highest since 2008. Prices retreated in three of the five following trading sessions. The July contract is at a 0.13-cent discount to October, from a 0.03-cent premium on Oct. 21, signaling easing concern about supply.

Raw sugar is now 2.9 percent lower since the start of January at 18.94 cents. Futures slumped for five consecutive quarters through June, the longest losing streak since 1991, as prices that reached a record 36.08 cents in February 2011 spurred farmers from Brazil to Thailand to increase supply.

Global sugar demand will rise 2.3 percent to a record 167.3 million tons in 2013-14, as production expands 0.2 percent to 174.9 million tons, the USDA estimates.

Six Warehouses

The fire at the Port of Santos damaged six warehouses belonging to Copersucar, Brazil’s biggest sugar and ethanol exporter, and destroyed 180,000 tons of raw sweetener. The terminal accounted for about 25 percent of sugar shipments from Santos, which serves the center south, a region that accounts for about 90 percent of national production.

Brazil is the biggest sugar producer and its shipments were valued at $12.65 billion last year, equal to about 5 percent of the nation’s exports, according to ITC TradeMap, a venture between the World Trade Organization and the United Nations. The damage at Santos may exacerbate strains on a transport network already contending with a record soybean crop.

While prices are retreating from the one-year high reached Oct. 18, they’re still almost 19 percent higher than the low reached in July. Futures had climbed because of concern that wet weather would disrupt Brazilian harvesting. The center south processed 18 percent less cane in the first half of October than a year earlier, Unica, an industry group, said Oct. 21.

The Santos warehouses could be rebuilt in eight to 12 months, according to Archer Consulting, an industry adviser in Sao Paulo. The conveyor belts and ship loaders weren’t damaged, Paulo Roberto de Souza, chief executive officer of Copersucar, said in a speech in Sao Paulo on Oct. 22. The company has yet to determine the full extent of the damage, he said.

Loading Cargo

Brazil’s sugar harvest is past its peak this season, which means there is enough capacity at other ports to handle diverted cargoes. A vessel that was originally scheduled to call at two terminals in Santos instead went to one and was due to load the remaining sugar at the Port of Paranagua, according to Williams Servicos Maritimos Ltda., a shipping agent.

When Brazil’s sugar harvest peaks again next year, the biggest buyers may not need the cargoes. China will import 2.5 million tons in 2013-14, 43 percent less than a year earlier, Kingsman estimates. The nation may buy as little as 1.4 million tons, said Robin Shaw, an analyst at Marex Spectron Group in London. China was the second-biggest importer of raw sugar last season, after Indonesia.

Third Quarter

Krispy Kreme, based in Winston-Salem, North Carolina, is locking in lower prices by making forward purchases, CEO James H. Morgan said at a conference in New York on Sept. 11. Grupo Bimbo, based in Mexico City, benefited from lower sugar costs in the third quarter, CEO Daniel Servitje Montull said on a conference call with analysts Oct. 24. Sweeteners are among the company’s most important raw materials and it hedges four to nine months into the future, he said.

India, Pakistan and Thailand, which combined produce 23 percent of the world’s sugar, typically start their harvests from September through November. Thailand, the second-biggest exporter, will ship a record 8.5 million tons in 2013-14, the country’s Office of the Cane and Sugar Board forecasts. India will send as much as 3 million tons overseas, from no more than 300,000 tons a year earlier, according to ED&F Man India, a unit of the London-based raw-materials trader.

“You have India, you have Thailand and you have Pakistan, so it’s not a complete disaster because these three main markets all have surpluses,” said Paul Baksh, the head of sugar and ethanol at ICAP Energy Suisse SA in Geneva. “Anyone who might need something isn’t that fussed.”

Biggest Refinery

Al Khaleej, the world’s biggest sugar refinery, bought 25,000 tons of raw sweetener from India last week, said Cyrus Raja, a general manager at the Dubai-based company. Al Khaleej usually buys sugar from Copersucar, he said. The company had already bought 50,000 tons from India before the fire, with sugar from the Asian nation $10 to $15 a ton cheaper than Brazilian supply, according to ICAP.

“The whole Copersucar affair is a non-event,” said Shaw of Marex Spectron. “It hasn’t destroyed much sugar, it destroyed 180,000 tons, we know that, and it’s going to make it complicated and more expensive for buyers to receive their sugar next year. But I don’t think it changes a thing.”

To contact the reporter on this story: Isis Almeida in London at ialmeida3@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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